S&P 500

Discussion of the Stock portion of the Permanent Portfolio

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mathjak107
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Re: S&P 500

Post by mathjak107 » Sun Nov 24, 2019 6:31 pm

Exactly .....so individual stocks take on a whole other level of risk that broad based funds don’t have ...individual company risk is a biggie
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Re: S&P 500

Post by Smith1776 » Thu Dec 12, 2019 2:20 am

What really strikes me as interesting is how many different schools of thought there really are in investing.

The efficient market guys; the value investing guys; the factor tilters; the stock pickers; they talk past each other almost as if they're speaking a totally different language.

A basic disagreement on the realities of how the market functions -- the axioms, if you will -- lead to these totally different world views on how to deploy your capital.
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Re: S&P 500

Post by dualstow » Thu Dec 12, 2019 6:31 am

And even individuals change style. A value guy becomes a factor guy.
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Re: S&P 500

Post by Smith1776 » Thu Dec 12, 2019 2:00 pm

I have definitely become a factor guy myself.

A switch from the Benjamin Graham value approach is also partially what prompted me to leave the field of finance entirely.

I did the CFA Level 1 exam and was SO disillusioned by how much the material contradicted itself.

1) The material preaches efficient market theory
2) Almost all of rest of the material teaches you how to do fundamental analysis

So basically the material is teaching you how to do the thing that even the CFA society itself says has a low chance of success. What's the point, then?
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Re: S&P 500

Post by ochotona » Sat Dec 14, 2019 6:20 pm

@TN tweeted: "S&P 500 is very top heavy again: top five stocks (Apple, Microsoft, Google, Facebook & Amazon) at 16.5% - the most weight since 1999"

Anything but market cap weighted... equal-weight, dividend payers... anything but FAMAG... what a trap
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Re: S&P 500

Post by sophie » Sun Dec 15, 2019 9:24 am

ochotona wrote:
Sat Dec 14, 2019 6:20 pm
@TN tweeted: "S&P 500 is very top heavy again: top five stocks (Apple, Microsoft, Google, Facebook & Amazon) at 16.5% - the most weight since 1999"

Anything but market cap weighted... equal-weight, dividend payers... anything but FAMAG... what a trap
Interesting how those are all tech stocks. So there's not only a concentration of a few stocks, but also in that one sector.

This makes me glad I started adding a set of individual stocks to complement my index fund holdings. I avoided the tech sector for exactly the above reason, and picked blue chips or solid companies spread around the other sectors.
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Re: S&P 500

Post by Smith1776 » Sun Dec 15, 2019 12:59 pm

sophie wrote:
Sun Dec 15, 2019 9:24 am
ochotona wrote:
Sat Dec 14, 2019 6:20 pm
@TN tweeted: "S&P 500 is very top heavy again: top five stocks (Apple, Microsoft, Google, Facebook & Amazon) at 16.5% - the most weight since 1999"

Anything but market cap weighted... equal-weight, dividend payers... anything but FAMAG... what a trap
Interesting how those are all tech stocks. So there's not only a concentration of a few stocks, but also in that one sector.

This makes me glad I started adding a set of individual stocks to complement my index fund holdings. I avoided the tech sector for exactly the above reason, and picked blue chips or solid companies spread around the other sectors.
I, too, am also glad I have some diversification away from TSM upon hearing this.

This concentration in the S&P was rather obvious in retrospect, but I didn't realize this myself.
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Re: S&P 500

Post by boglerdude » Mon Dec 16, 2019 2:20 am

And those tech stocks will outperform because of your pessimism, just like Facebook has since IPO. The Wall of Worry!
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Re: S&P 500

Post by sophie » Mon Dec 16, 2019 7:53 am

boglerdude wrote:
Mon Dec 16, 2019 2:20 am
And those tech stocks will outperform because of your pessimism, just like Facebook has since IPO. The Wall of Worry!
Of course they will, until they won't.

I still have some PTSD from the advisor who put my Roth IRA 100% into tech stocks in 1999/2000. You can guess what happened after that. It went from ~$100K to about $12K. Not saying history is going to repeat itself, but that was an expensive lesson in avoiding stock concentration in any form. (Also in trusting advisors to make investment choices - I was young and dumb at the time.)

Although I should point out, the portion of the S&P 500 we're talking about here is only 16%. A 2000-style tech crash would not cause anything like my experience above.
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Re: S&P 500

Post by vnatale » Mon Dec 16, 2019 9:09 am

sophie wrote:
Mon Dec 16, 2019 7:53 am
boglerdude wrote:
Mon Dec 16, 2019 2:20 am
And those tech stocks will outperform because of your pessimism, just like Facebook has since IPO. The Wall of Worry!
Of course they will, until they won't.

I still have some PTSD from the advisor who put my Roth IRA 100% into tech stocks in 1999/2000. You can guess what happened after that. It went from ~$100K to about $12K. Not saying history is going to repeat itself, but that was an expensive lesson in avoiding stock concentration in any form. (Also in trusting advisors to make investment choices - I was young and dumb at the time.)

Although I should point out, the portion of the S&P 500 we're talking about here is only 16%. A 2000-style tech crash would not cause anything like my experience above.
Misery loves company? I had one IRA that I'd invested all in the Janus Mercury Fund 1998. I am almost certain that it was high technology stock concentrated. I'd invested $30,000 and at its peak it hit $130,000. In January 2003, I sold it all for $25,000.

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Re: S&P 500

Post by Kbg » Mon Dec 16, 2019 10:11 pm

Cap weighted is momentum is disguise, period. However, you are also loading up on the index’s/country’s most successful businesses. There are worse things you could do.
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Re: S&P 500

Post by Kbg » Mon Dec 16, 2019 10:11 pm

Cap weighted is momentum is disguise, period. However, you are also loading up on the index’s/country’s most successful businesses. There are worse things you could do.
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Re: S&P 500

Post by boglerdude » Thu Dec 19, 2019 1:44 am

So you have 100 investors and a stock market with 3 companies. They value company A as worth $1 trillion, B 800 million, and C 200 million. Total market cap 2T.

These investors combined own 50% A, 40% B, 10% C in their portfolio. Some may hold different percentages than others.

These investors are smarter than me so I dont question what they think the companies are worth. But if I do NOT hold 50% A, 40% B, 10% C - is that going against their collective wisdom?
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Re: S&P 500

Post by Kbg » Thu Dec 19, 2019 5:58 pm

You don’t have to buy a cap weighted index, you can buy an equal weighted one, a factor based one, or skip large cap altogether. Why complain when there are so many alternatives?

The method is the method.

Now historically when these huge caps decide to take a nose dive you are going off the board with them, this is a known for anyone who has done their homework. Your alternative options are use something else or try your hand at market timing.
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Re: S&P 500

Post by ochotona » Thu Dec 19, 2019 7:07 pm

FYI...

Equal weight SP500 performs almost exactly like cap weighted Large Cap 45% and Mid Cap 55%

I think that's very interesting.
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Re: S&P 500

Post by Kbg » Thu Dec 19, 2019 9:02 pm

My last post probably sounds like I was dissing on boglerdude which was not my intent, but yeah, equal weight avoids the problem bd pointed out. In a way it IS a problem no doubt...but the flip side is you are also loading up on America's most successful companies. [strike]Large[strike] cap weighted is sorta Darwinian in how it works. And to be redundant, there are worse things you could do with your money. What is amazing to me is not only how narrow the market is but how long this effect has been in place. It's quite incredible really.
Last edited by Kbg on Tue Dec 24, 2019 9:30 am, edited 1 time in total.
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Re: S&P 500

Post by boglerdude » Fri Dec 20, 2019 9:51 pm

the question wasnt answered, is cap weighting what the efficient market recommends? If you buy total market index do you own, for example, 1% of each company in the index? So you dont own "more Apple" than anything else. Apple has more revenue than small companies
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Re: S&P 500

Post by Kbg » Tue Dec 24, 2019 9:35 am

Short answer, yes.

Total Market is still cap weighted it just adds smaller companies. Perhaps someone can correct but I think with total market you get like 20% small to mid caps and the rest is still large cap...which gives you an idea of how big large caps are.
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Re: S&P 500

Post by vnatale » Fri Oct 08, 2021 9:55 pm

I had always thought that when I finally fully implement the Permanent Portfolio....that the stock portion would be the easiest to implement.

Just buy Vanguard's Total Stock Market fund. Though the below article focuses on Vanguard's S&P 500 fund....as he points out a lot of its details also somewhat apply to the Total Stock Market fund.

Do some of you rather than buying the Total Stock Market Fund...buy three index funds? Large-cap, Mid-cap, Small-cap?

Finally what do you think of his S&P 500 Equal Weight index analysis and recommendation?

Vinny




The Truth About Index Funds

https://www.kiplinger.com/investing/ind ... ndex-funds

"You may think you're diversified by buying an S&P 500 Index fund, but you're making a substantial wager on a handful of stocks

Any cap-weighted index fund is a heavy bet on larger companies. Lately, that bet has become extremely heavy because a few stocks have become gigantic. In 2011, for example, the total market cap of the 10 biggest S&P 500 stocks was $2.4 trillion. Currently, it’s $13.7 trillion. Apple itself has a cap as large today as all 10 of the largest S&P stocks combined a decade ago.

Or consider simply the five trillionaire stocks I highlighted recently. All by themselves, Alphabet (GOOGL), Amazon.com (AMZN), Apple, Facebook (FB) and Microsoft (MSFT) represent 22% of the value of the S&P 500. In recent years, those stocks have been on a tear, and the index has benefited.

Targeted Bet

You may think you are getting broad diversification by buying an S&P 500 Index fund, but you are actually making a substantial wager on a handful of stocks in the same sector. As of July 31, infor­mation technology, Apple's category, and communications services, the sector of Facebook and Alphabet, Google's parent, represent a whopping 39% of the S&P 500. By contrast, energy represents just 2.6%."

"The five trillionaire stocks represent about 18% of the asset value of Vanguard Total Stock Market (VTI), the most popular of the ETFs based on such indexes;"

"I still like the trillionaires, and I like technology, but I have decided no longer to deceive myself by thinking that most index funds tracking the S&P 500 are the best way to own the U.S. market."

"The Equal-Weight Solution

There are, however, ways to avoid loading up on a few stocks, or any one sector.

One is the S&P 500 Equal Weight Index. Each stock represents roughly 0.2% of total assets (there are actually 505 stocks in the S&P 500 Index), with rebalancing at the end of each quarter. As a result, every time the index is rebalanced, the trillionaires account for about 1% of assets; technology and communi­cations, 20%. Over the past 10 years, the S&P 500 has beaten its equally weighted cousin by about one percentage point, annualized, but that's hardly unexpected in a great decade for big growth stocks."

"Invesco S&P 500 Equal Weight (RSP), an ETF with an expense ratio of 0.2%, offers an easy way to buy the index. Be warned that its turnover, at 24%, is much higher than a standard broad market index fund's turnover, so it's best to own it in a tax-deferred account such as an IRA."

"I'm not telling you to avoid conventional broad-market funds. Notice that I am still recommending them. I'm just saying there are other ways to get better diversification and come close to really owning the U.S. stock market."
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